Monday, December 24, 2012

Vilfredo Pareto's Simple Discovery

When I worked in industry, we used Statistical Process Control to ensure that our manufacturing processes were stable. We measured output using a variety of charts and could identify if something were going wrong with a process (a blade going bad on a cutter, or perhaps a die wearing out) and could fix the problem before it became severe.

One of the charts we used was called a Pareto Chart; on it we listed the types of errors we got from a specific process, and the quantity of those errors. The goal was to attack the most common error first. Turns out that chart was named after Vilfredo Pareto, who's discussed in this article:

With today’s liberals, it is not really about fairness. It is about trying to make people equal who will never be equal. It is what socialism and communism have always striven toward, and it is something their philosophy has never achieved. It can never be achieved.

And that is because people are not equal. Created equal, yes; equal under the law, yes; equal in many ways, yes; but ultimately not equal because people are all different. Despite ecumenical pleas that we are all one, that we are all the same, we really are not.

And neither is the tax situation. Liberals cry that the rich are not paying their share, and they are right about that – just in the wrong direction.

The top one percent of earners pays 40 percent of all income taxes. The top 10 percent pays 70 percent of all taxes. The top 50 percent pays 98 percent. The bottom 50 percent of earners pays two percent.

That is the truth. However, the truth, historically, has always been the biggest enemy of the liberals, socialists and communists.

Their goal has never been to be “fair,” or to make rich people pay a “fair share.” Their goal is to make everyone equal in the egalitarian utopia that socialists have always desired. The trouble is, it usually ends with everyone being equally poor and equally miserable...

When you talk about unfairness and inequality, consider the work of Vilfredo Pareto, an Italian engineer and sociologist turned economist. More than a hundred years ago, he saw disparity and it made him wonder – why was 80 percent of the land in Italy owned by 20 percent of the people? He saw the rich and the poor, and he wondered why some people became rich and some remained poor.

His observations – known as the Pareto Principle, or the 80/20 Rule — are worth noting, and apply today as much as they did a hundred or a thousand years ago.

Pareto noted that 80 percent of a company’s profit came from 20 percent of its customers; 80 percent of a company’s sales come from 20 percent of its salesmen, and from 20 percent of its clients; 80 percent of a company’s complaints come from 20 percent of its customers; in his garden, 80 percent of the peas came from 20 percent of the peapods. In other words, 80 percent of achievement comes from the efforts of 20 percent.

The principle has been adapted and expanded by a number of economists in the years after Pareto. Microsoft, for example, did its own study showing that fixing 20 percent of the most reported bugs eliminates 80 percent of errors and crashes. Safety experts know that eliminating 20 percent of hazards prevents 80 percent of injuries. Supervisors know that 20 percent of the work takes 80 percent of the time...

A 1992 study by a United Nations committee found that the richest 20 percent of the world’s population controlled 82 percent of the world’s income, while the poorest 20 percent controlled 1.4 percent (and the poorest 60 percent controlled 5.5 percent). The U.N. didn’t need a study to show that.

It does seem unfair that so many have a lot while so many others have so little. But that is life, and life is unfair. The Democrat liberals and socialists have turned America from a society that praised and rewarded hard work, to a society that scorns and punishes it. We now are a society that has made a cult of worshipping the poor. There’s an old saying that it isn’t a crime to be poor, but it isn’t a great achievement. Well, now it is considered a great achievement...

It was Pareto’s education as a sociologist, where human nature came into the mix, that made him understand why utopian theories didn’t work out in reality.

I found the Pareto Principle on a local level, anytime I had to do a story about any of the high schools my newspapers covered. I noticed that the students at the top of the class were involved in the most activities, while those at the bottom of the class were involved in no activities. That didn’t make sense to me on first glance. The students involved in so many activities, like sports, music, service clubs — shouldn’t they have the lowest grades because they don’t have time to study, and shouldn’t those with no involvement have the highest grades because they have all that free time to study?

No, it was just the opposite. Those who worked the hardest, in an out of the classroom, were the smartest and the most successful.

Just like in real life.

Some things just are. That doesn't mean they're good or desirable, but a quixotic and ruinously expensive attempt to change them isn't any more so.

1 comment:

All those percentages would be relevant, were it not for the fact that three of the largest federal expenditures are paid not by income tax, but by FICA tax, which is exceptionally regressive ---having an effective rate of about 16% on approximately the first 100k of income, and zero thereafter. And, there are no deductions for FICA . . .